When Superstorm Sandy blew through the streets of downtown Philadelphia, it closed down the high-rise headquarters of Radian Group Inc. for two full days. But the mortgage insurer had it covered. It has virtual systems backing up its core operations. So even though 60 percent of its mortgage insurance (MI) operations group is based in its 1601 Market Street office building, the company didn't miss a beat. [paragraph] It takes more than a hurricane to catch this company unprepared. Credit risk insurance is its core business. And it survived the housing meltdown after all--so what's a little hurricane compared with that? [paragraph] But there might be an even bigger storm brewing 100-plus miles south of Philly in Washington, D.C. It's called housing finance reform. And that's much less predictable--ordinary weather radar can't track the course of what Congress might eventually do. And like it or not, the future of the MI business is hitched to the fine print of federal housing finance policy. [paragraph] Credit risk data smarts, innovative sales strategies, smart deployment of capital and business operations savvy are among the key attributes at this leading private MI firm. Those traits have helped the company claim the top spot for MI market share as of last year's fourth quarter, according to Inside Mortgage Finance.
Radian went from between 12 percent and 15 percent in the pre-2009 period to roughly 28 percent to 30 percent in more recent years. In 2012 alone, the company grew its market share by about 6 percent on a year-over-year basis. So it's been on a streak, growth-wise.
This firm did not emerge from the wreckage of the mortgage meltdown with dominant share for no reason. Now it is poised to put its unique senior management talent to work as the nation begins redrawing the contours of its housing policy.
Make no mistake about it--this is a unique moment for MI companies. The ones that survived the crisis (like Radian) are still managing sizable ongoing claims from their legacy books, while at the same time handling strong growth from insuring high-quality volume from Fannie Mae and Freddie Mac loans. But the other business challenge they face right now is the whole question of how new housing policy will rattle their business model and rearrange the deck chairs.
At the center of this new storm is where to place the government's mortgage-insuring muscle and its guarantee. And even more to the point for lawmakers is how much to put the taxpayer's money at risk. Those two questions will determine the size of the market that's left for private MI. Future profits will depend on how that market space is defined.
The big what-if the company is trying to prepare for is what will be the specific role going forward for private mortgage insurance. And a lot of that depends on what folks in the Congress decide to do with the Federal Housing Administration (FHA) and Fannie Mae and Freddie Mac.
Tracking the course of those developments and being prepared for various contingencies takes some first-hand knowledge of how Washington works. Here's where Teresa Bryce Bazemore, Radian Guaranty Inc.'s president, enters the picture.
A veteran of the mortgage banking business, she has held high-profile executive positions with big national lenders, including serving as general counsel for Bank of America Mortgage. She has served on the board of directors for the Mortgage Bankers Association (MBA), on the Consumer Advisory Council of the Federal Reserve and on the Fannie Mae National Advisory Council.
She came on board at Radian in October 2006 and remembers feeling strongly early on that Radian should have a government relations program. Right now, she's probably feeling pretty good about those instincts.
Radian held off for a bit before finally getting a program going in 2008--the year the mortgage market exploded and the government-sponsored enterprises (GSEs) were taken over. She recalls in June and July of that year planning visits on Capitol Hill that actually ended up occurring in September 2008--a fateful month in the housing crisis. She remembers being on the Hill not even 10 days after the GSEs went into conservatorship. Her first day of visits happened on the day of the AIG bailout. The next day was the day former Treasury Secretary Hank Paulson introduced the Troubled Asset Relief Program (TARP) proposal.
"So I did get a lot of rapt attention from people on the Hill because obviously a lot was going on and Lehman Brothers had also just failed," says Bazemore.
Since then, Bazemore has spent countless hours shuttling down the East Coast to the nation's capital. Her assistant, Rose, has the Amtrak Acela train schedule from Philly to D.C. basically memorized.
Bazemore knows her way around Capitol Hill--that unique microclimate where businesses and industries can be made and unmade. These days, the discussion is well under way over how to fix FHA's serious financial woes and transition plans for the GSEs. And it seems to revolve around a mantra of using more private capital--all of which makes private MI a white knight of sorts.
A Capitol Hill regular
Those current housing policy discussions have brought Bazemore to Capitol Hill even more frequently than normal. Take, for example, the month of February.
On Feb. 15, Bazemore moderated a panel sponsored by Radian in the Rayburn House Office Building on Capitol Hill. The panel topic was "Homeownership: Supporting First Time Homebuyers--Understanding the Impact of the Regulatory & Legislative Environment."
Two weeks later, Bazemore testified before the Senate Committee on Banking, Housing and Urban Affairs. The topic was "Addressing FHA's Financial Condition and Program Challenges, Part II."
She told the senators, "FHA has been and remains a valuable part of the housing finance system. In the past few years, however, FHA has overtaken the mortgage insurance market due to increased loan limits, inadequately priced FHA premiums and permissive FHA underwriting."
She applauded "recently taken modest steps" by FHA to raise premiums and strengthen underwriting requirements. But stressed...